E.ON price rise: time to switch as energy firms turn up the heat

As gas and electricity prices spiral by up to 20pc, consumers need to act.

It is a case of four down, to to go when it comes to energy providers announcing price rises. Two months ago Scottish Power made the first move to inflict double-digit price hikes on its customers, and last week it was the turn of British Gas to pile on the misery for millions of households whose finances are getting squeezed by the day.

Scottish & Southern Energy came next, now E.ON has made its move, leaving just EDF and npower to annouce their plans EDF.

The rises mean that the average dual fuel bill will have increased by 50pc since 2007 to around £1,450, including 20pc rises this year.

Why are bills so high?

Not surprisingly, the energy giants claim they have had no choice in the matter – their own bills are being driven up because they buy 50pc of their gas on the international wholesale market. They also blame the costs of government environmental and social programmes.

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Yet Ofgem, the energy regulator, is not convinced by the wholesale price argument. Earlier this year it found evidence that energy providers raised prices faster than they cut them (energy providers deny any wrongdoing), and now it has hired forensic accountants to scrutinise the wholesale fuel prices paid by the big six.

Figures provided to Ofgem show some companies are sourcing electricity and gas much more cheaply than their rivals, undermining the argument that they all face the same commodity price pressures.

For example, Scottish Power's retail business last year paid £68.3 per MWh (Megawatt hour) for electricity supplied to domestic customers, which was 27pc more than Centrica's average price of £53.7 per MWh.

In the energy providers' defence, whether you have an ethical conscience or not, every household is footing the bill for the Government's target to meet 30pc of the country's energy needs from renewable sources by 2020.

For instance, gas and electricity customers pay £48 a year towards the Carbon Emissions Reduction Target and £13 towards the EU Emissions Trading Scheme. All the extras add around £80 to the typical household bill.

What can you do?

Because higher gas and electricity costs are a nigh-on certainty the message is simple: switch. Yet despite the huge savings that can be made, many people do not bother. It is estimated that more than half of consumers have not switched since the market was opened up in 1996, leaving many still on uncompetitive deals that cost hundreds of pounds a month more than the average prices offered by the industry.

Ann Robinson, director of consumer policy at uSwitch, said: "There is no room for complacency and I would urge consumers to act now. Fixing your energy prices is an option that offers security and peace of mind, especially for those worried about the impact of price hikes on their household budget. But, whatever type of plan you opt for, always make sure you get an independent and impartial comparison based on your own personal circumstances before signing up."

Scott Byrom, energy channel manager at moneysupermarket.com said: "Bearing in mind historical energy market price rises, it's highly likely the other energy providers will follow suit [on prices]. So now is the time to get on to the best fixed-price energy tariff for your usage level and the area you live in."

What about smaller providers?

Chris Huhne, the Energy Secretary, has been on the warpath. He says the energy market "has been too cosy for too long" and it is "madness" that 99pc of people get their energy from large firms: "The current market simply can't deliver, so we need more companies and more competition to keep price rises as low as possible."

Smaller suppliers, such as Good Energy, Ecotricity, OVO and First: Utility, have set out to differentiate themselves – the first two by their use of renewable energy and the latter because it was the first to offer all customers the chance to get a smart meter installed.

But they do not always deliver on price. Tom Lyons, energy expert at uSwitch.com, said: "In terms of pricing, smaller players were giving the big six a real run for their money back in 2009, but now that wholesale prices are higher they are struggling to compete on price. That said, they are still a viable alternative for those consumers who don't want to be with a major supplier."

A crumb of comfort

It will probably be of small comfort to home owners feeling the pinch, but it is worth remembering that you may have a vested interest in Centrica, which owns British Gas, performing well.

This is because there is every chance that your pension fund or any unit trusts you hold have a slice of Centrica in their portfolio, given that the company is in the FTSE 100. Centrica is a decent payer of dividends, which make up a sizeable chunk of returns.